On the other hand, even when the debt cycle is balanced for a short period, the long-term implications are enormous. The businesses which borrowed or those that loaned money may become financially unstable for a long time. This affects the entire economy of a country.
Can Debt Crises be Managed to Avoid Big Problems?
If the policymakers of a country efficiently handle debt cycles, it is possible to control debt crises to a large extent. They can use their authority and knowledge to make policy changes so that debt crises do not drown the entire country.
Policymakers can start with the use of austerity, or spending less than what is brought in. They may also make certain debt defaults and restructuring. The central government can print more money and make more purchases to increase the amount of money in circulation. Another efficient method is to transfer money from those who have more to those who need it, which can be done in various ways.
Thus, debt cycles are integral and unavoidable parts of an economy’s system. However, they can be managed effectively to ensure they do not become vast crises.
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